Silverwood Brands - Full Year Results 31 December 2022

Silverwood Brands plc (the Company) is a public company limited by shares and registered in England and Wales with company number 13557318. The Company, which was incorporated on 10 August 2021, is domiciled in the United Kingdom and the registered office is 2nd Floor 38‑43 Lincoln's Inn Fields, London, England, WC2A 3PER. The shares of the Company are traded on the Growth Market of the Acquis Stock Exchange with the ticker code SLWD. PL. The financial statements for the Company are the first statutory financial statements for the period from incorporation to 31 December 2022. The consolidated financial statements comprise the Company and its subsidiaries (together referred to as the "Group") and are for the year ended 31 December 2022. Further details of the basis of preparation of the financial statements are set out in note 3.

 

The principal activity of the Group is the sale and distribution of beauty products.

2.       Accounting policies

These financial statements have been prepared in accordance with UK adopted international accounting standards..

The financial statements are presented in Pounds Sterling and all values are rounded to the nearest pound.

These consolidated financial statements have been prepared in accordance with the accounting policies set out below, which have been consistently applied to all the years presented.

Standards adopted in the year

There have been no standards adopted that have had a material impact on the financial statements
and no standards adopted in advance of their implementation date.

Standards, amendments and interpretations to published standards not yet effective

The Directors have considered those standards and interpretations, which have not been applied in the
financial statements but are relevant to the Group's operations, that are in issue but not yet effective
and do not consider that they will have a material impact on the future results of the Group.

At the year‑end, the Group had cash balances of £2,055,143 (2021: £36,176) and net assets of £218,186,183 (2021: net liabilities £739,346). The Group has posted a loss for the year after tax of £6,035,726 (2021: loss of £296,700) and retained losses were £6,775,074 (2021: losses of £739,348). The loss after tax of £6,035,726 was after charging exceptional acquisition costs of £2,832,049 and a non‑cash charge of £2,536,000 relating to the Reverse Takeover described in note 3.

Silverwood entered into two loan agreements with Castelnau Group Limited (Castelnau) in the period:

· An unsecured convertible loan facility of approximately £1.5 million to be applied towards general working capital requirements of the Company repayable on the first anniversary of draw down. The loan was converted in full into ordinary shares on 31 May 2023.

· An unsecured term loan facility of approximately £4.4 million to be applied towards the acquisition of NBY London Limited and to general working capital requirements of the Company repayable on the first anniversary of draw down (or earlier at the option of the Company).  There are no conversion provisions in this loan agreement. Castelnau has confirmed to the directors of Silverwood its intention to convert the loan into ordinary shares and also confirmed that if for any reason the loan was not converted in October 2023 to extend the repayment date by 12 months. 

The financial statements have been prepared on a going concern basis. The Directors have

reviewed forecasts for the Group for a period of at least 12 months from the date of approval of the financial statements.

Based on their assessment, the Directors have a reasonable expectation that the Group and Company have adequate resources to for at least twelve months and that there are no material uncertainties that cast significant doubt about the Group's ability to continue in operational existence. Accordingly, they have adopted the going concern basis in preparing the consolidated financial statements.

The Group financial statements consolidate those of the Company and its subsidiaries undertakings drawn up to 31 December 2022. Subsidiaries are entities over which the Group has control. Control comprises an investor having power over the investee and is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Intra‑group balances and transactions, and any unrealised income and expenses arising from intragroup transactions, are eliminated. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

On 14 June 2022, the Company, completed a reverse acquisition of Balmonds Skincare Ltd a company registered in the United Kingdom. Further information about this transaction is disclosed in note 3.

The comparative period for the Group is 1 January 2021 to 31 December 2021 and includes the results of Balmonds only.

Revenue is measured on the consideration specified in a contract with a customer.

Revenue is recognised when the Group's obligations are fulfilled, i.e. when control over goods is transferred to customers. Customers obtain control of the goods when they are delivered to and have been accepted at their premises, or other agreed upon location, or made available for ex‑works collection, depending on individual customer arrangements.

Invoices are generated at that point in time and are usually payable within 30 days. Revenue is recorded based on the price specified in sales invoices, net of any agreed discounts and rebates, and exclusive of value added tax on goods supplied to customers during the year.

There are a variety of discounts and rebates provided to customers, which are assessed on a case‑by‑case basis as to whether the resulting payment to customers is for a distinct good or service (such as marketing) or for a promotional discount.

Returns are permitted, but typically these only occur in isolated instances where inaccuracy has been made in the order.

Government grants are recognised when the entity complies with any conditions for the grant it is receivable and with the value of any unmet performance obligations required to receive the grants recognised as deferred revenue.

A right‑of‑use asset is recognised at the commencement date of a lease. The right‑of‑use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset.

Right‑of‑use assets are depreciated on a straight‑line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the Group expects to obtain ownership of the leased asset at the end of the lease term, the depreciation is over its estimated useful life. Right‑of use assets are subject to impairment or adjusted for any remeasurement of lease liabilities..

All plant and equipment is stated at cost less subsequent depreciation and impairment. The costs of the property, plant and equipment is purchase price plus any incidental costs of acquisition. Depreciation commences at the point the asset is available for use.

If there is any indication that an asset's value is less than it's carrying amount an impairment review is carried out. Where impairment is identified an asset's value is reduced to reflect this.

The residual values and useful economic lives of property, plant and equipment are reviewed by management on an annual basis and revised to the extent required.

Depreciation

Depreciation is provided to write off the cost, less estimated residual values, of all plant and equipment equally over their expected useful lives. It is calculated at the following rates:

          ‑ Office Equipment at 33% per annum
          ‑ Plant & Machinery at 25% per annum
          ‑ Computer Equipment at 25‑33% per annum
          ‑ Short‑Term Leasehold Property - over the life of the lease
          ‑ Freehold Property - 25% per annum

All intangible assets, excluding goodwill arising on a business combination, are stated at their amortised cost or value at initial recognition less amortization and/or any provision for impairment.

Definite useful life intangibles
          ‑ Trademarks ‑ amortised at 10% per annum straight‑line
          ‑ Customer relationships ‑ amortised at 20% per annum straight‑line
          ‑ Development ‑ amortised at 20% per annum straight‑line
          ‑ Patents - amortised at 25% per annum straight‑line
          ‑ Other intangible assets - amortised at 20% per annum straight‑line

Indefinite useful life intangibles
Goodwill is allocated to the cash generating unit (CGU) to which it relates and is tested for impairment annually, or more frequently when there is an indication that the unit maybe impaired. The testing takes the form of a discounted cashflow analysis using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the CGU. Impairment losses cannot be subsequently reversed.

2.9    Investments

Investments are non-derivative financial assets that cannot be classified as loans and other receivables or cash and cash equivalents.  Investments are recognised when the Group becomes party to the contractual arrangements relevant to ownership and de-recognised when it ceases to be party to such arrangements.

Dividends and interest income from investments are included within finance income when the Group's right to receive payments is established. This category includes financial assets at fair value through profit and loss and financial assets at fair value through other comprehensive income.

Measurement of fair values

When measuring the fair value of an asset or a liability, the Group uses observable market data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.

-- Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

-- Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

-- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

If the inputs used to measure the fair value of an asset or a liability fall into different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Lease payments comprise of fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, amounts expected to be paid under residual value guarantees, exercise price of a purchase option when the exercise of the option is reasonably certain to occur, and any anticipated termination penalties. Lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred.

Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following: future lease payments arising from a change in an index or a rate used; residual guarantee; lease term; certainty of a purchase option and termination penalties. When a lease liability is remeasured, an adjustment is made to the corresponding right‑of use asset, or to profit or loss if the carrying amount of the right‑of‑use asset is fully written down.

The tax expense for the period comprises current tax and deferred tax. Current tax is recognised in profit or loss, except that a charge attributable to an item of income or expense recognised as other comprehensive income is also recognised directly in other comprehensive income.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the statement of financial position liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Cash and cash equivalents comprise cash on hand and other short‑term highly liquid investments (less than three months at inception) that are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value.

Inventories are valued on a first in, first out basis at the lower of cost and net realizable value. Cost
includes all expenditure incurred during the normal course of business in bringing in inventories to their present location and condition. Net realizable value is based on the estimated useful selling price less any direct sale costs.

Non‑derivative financial instruments
A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Group's contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Regular purchases and sales of financial assets are accounted for at trade date, i.e., the date that the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Group's obligations specified in the contract expire or are discharged or cancelled.

Trade and other receivables
Trade receivables are amounts due from customers for goods sold or services performed in the ordinary course of business. They are generally due for settlement within 90 days and therefore are all classified as current. Trade receivables are recognised initially at the amount of consideration that is unconditional unless they contain significant financing components, when they are recognised at fair value. The Group holds the trade receivables with the objective to collect the contractual cash flows and therefore measures them subsequently at amortised cost using the effective interest method.

Interest‑bearing borrowings
Interest‑bearing borrowings are classified as nonderivative financial instruments, measured at amortised cost using the effective interest rate method.

Trade and other payables
Trade and other payables are stated at net payable amounts.

Derivative financial instruments
The Group has no derivative financial instruments..

"Ordinary Shares" are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from proceeds.

"Share premium" represents the excess over nominal value of the fair value of consideration received for equity shares net of expenses of the share issue.

"Retained earnings" represents retained losses of the group. As a result of the reverse takeover, the consolidated figures include the retained losses of the Group only from the date of the reverse takeover together with the brought forward losses of Balmonds Skincare Ltd.

"Reverse takeover reserve" represents the accounting adjustments required to reflect the reverse takeover upon consolidation.

"Shares to be issued" represents the deferred consideration arising from the acquisition of Balmonds Skincare Ltd which will be recognised as an issue of shares in Silverwood Brands plc.

"Share based payments reserve" represents amounts recognised in equity in relation to share based payments and similar charges.
           

In the application of the Company's accounting policies, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not apparent from other sources. The estimates and assumptions are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

Critical accounting judgements
In applying the Group's accounting policies, management has made the following judgements, which have the most significant effect on the consolidated financial statements.

Reverse acquisition accounting - identifying the accounting acquirer
As disclosed in the basis of preparation (accounting policy 2.1), management has used judgement to determine an appropriate accounting policy to account for the business combination in the period. The most significant judgement is in determining the accounting acquiror as the conclusion of this has a fundamental impact on the presentation of the financial statements. In arriving at that judgement management had regard to the guidance in IFRS 3 to identify the accounting acquirer and on this basis determined that Balmonds Skincare Ltd was the accounting acquirer and therefore presented the financial statements as disclosed in note 3.

Investment in Lush

As set out in note 16, the directors of Cosmetic Warriors Limited and Lush Cosmetics Limited have disputed the transfer of the shareholdings to Cosmic Circles Limited and declined to record the share transfers.  The directors of the Company have exercised judgement in considering the circumstances in relation to the Company's investment in the Lush companies and determining that the investment meets the definition of an asset in IFRS because it is a resource controlled by the entity as a result of past events from which future economic benefits are expected to flow to the Group.

Contingent consideration
The agreements, made in 2022, to acquire Balmonds Skincare Ltd ("Balmonds") and NBY London Ltd

("NBY") include provision for the Group to pay additional consideration to the selling shareholders in future years conditional on the achievement of incremental revenue or other specific growth targets. We have evaluated each agreement in accordance with IFRS 3 to determine whether these payments should be included as part of the business combination or post combination remuneration expensed to the income statement. Where agreements include conditions for continuing employment, therefore we have concluded that these payments should be charged to the income statement in future periods.

The acquisition‑related contingent consideration and earn‑out liabilities may include estimates of future
financial performance against targets. When estimating the future financial performance, we use Board‑approved budgets and, if the timeframe goes beyond available budgets, reasonable growth rates are assessed for each business thereafter.

Valuation of intangible assets
The determination of the fair value of assets and liabilities including goodwill arising on the acquisition of businesses, the acquisition of industry‑specific knowledge, branding and customer relationships, whether arising from separate purchases or from the acquisition as part of business combinations, and development expenditure which is expected to generate future economic benefits and the time over which this is expected, are based, to a considerable extent, on management's estimations.

The fair value of these assets and their expected useful economic lives are determined by discounting estimated future net cash flows generated by the asset where no active market for the assets exists. The use of different assumptions for the expectations of future cash flows and the discount rate would change the valuation of the intangible assets.

Key sources of estimation uncertainty
The key areas where estimates and assumptions are significant to the financial statements are described below.

Goodwill
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the CGUs are determined from value in use. The key assumptions for the value in use calculations are those regarding the discount rates (being the cost of capital), growth rates (based on Board approved forecasts) and future profit margins (based on Board approved forecasts). The Directors are satisfied that recoverable amounts are in excess of the value of the goodwill held. At 31 December 2022, the carrying amount of goodwill was £5,829,691 (2021: £5,000).

On 15 June 2022, the Company acquired through a share for share exchange the entire shares of Balmonds Skincare Ltd ("Balmonds") whose principal activity is the sale and distribution of beauty products.

Although the transaction resulted in Balmonds becoming a wholly owned subsidiary of the Company, the transaction constitutes a reverse acquisition as the previous shareholders of Balmonds own a majority of the ordinary shares of the Company.

In substance, the shareholders of Balmonds acquired a controlling interest in the Company and the transaction has therefore been accounted for as a reverse acquisition. As the Company's activities prior to the acquisition were purely the maintenance of its listing on the the Acquis Growth Market, acquiring Balmonds and raising equity finance to provide the required funding for the operations of the acquisition it did not meet the definition of a business in accordance with IFRS 3 for the purpose of these consolidated financial statements of the Group.

Accordingly, in these consolidated financial statements, the reverse acquisition did not constitute a business combination and was accounted for in accordance with IFRS 2 "Share‑based Payments" and the associated IFRIC guidance. Although, the reverse acquisition is not a business combination, the Company has become a legal parent and is required to apply IFRS 10 and prepare consolidated financial statements. The Directors have prepared these consolidated financial statements using the reverse acquisition methodology, but rather than recognising goodwill, the difference between the equity value given up by the Balmonds shareholders and the share of the fair value of net assets gained by the Balmonds shareholders is charged to the statement of comprehensive income as a share‑based payment on reverse acquisition and represents in substance the cost of acquiring a market listing.

These financial statements of the Company are its financial statements for the first period of account from incorporation to 31 December 2022.  In accordance with reverse acquisition accounting principles, these consolidated financial statements represent a continuation of the consolidated statements of Balmonds and therefore are the financial statements of the group for the year ended 31 December 2022, including activities before the legal formation of the parent entity. The consolidated financial statements include:
          •the assets and liabilities of Balmonds at their pre‑acquisition carrying value amounts and the results for both years; and
          • the assets and liabilities of the Company as at 14 June 2022 and its results from the date of the reverse acquisition to 31 December 2022.

On 14 June 2022, the Company issued 4,808,039 ordinary shares to acquire the whole of the share capital of Balmonds an issue price of £0.85 per share. In addition, a further 1,398,365 Ordinary shares were issued to shareholders in Balmonds in consideration of the novation of the Company of a shareholder loan and a further 3,205,360 Ordinary shares are to be issued to the shareholders in Balmonds as deferred consideration.

Because the legal subsidiary, Balmonds, was treated on consolidation as the accounting acquirer the fair value of the shares deemed to have been issued by Balmonds to acquire the company less the fair value of the net assets of the company at acquisition resulted in £2,665,094, being recognised as a reverse acquisition expense within Exceptional Costs in accordance with IFRS 2, Share Based Payments, reflecting the economic cost to Balmonds shareholders of acquiring a quoted entity.

These consolidated financial statements are presented in pound sterling, which is the Company's functional currency. All amounts have been rounded to the nearest pound, unless otherwise indicated.